Sustainability and Profitability: The Balance in Real Estate

Sustainability in real estate means having energy-efficient structures with low environmental impact or carbon footprint. As it stands, the real estate sector uses up to 40% of the world’s energy and contributes around 30% of greenhouse gases that cause climate change. Climate change, in turn, results in rising sea levels and extreme weather conditions that negatively affect real estate prices and profitability.

Real estate owners, investors, and asset managers are recognizing that incorporating sustainability into their business management and processes can remarkably improve profitability. Shifting to sustainable practices means complying with environmental, social, and governance (ESG) standards. For investors, compliance with ESG is one of the common criteria when evaluating the long-term success of any business. But not all sustainable practices significantly improve a real estate property’s financial performance. In this post, we look into solar energy as a tool for achieving a balance between sustainability and profitability in real estate. 

How Sustainability Improves Real Estate Financial Performance

ESG-focused real estate practices increase profitability and responsibly improve financial performance in the following ways:

Increased Resilience and Better Risk Management

Real estate is prone to climate change-related damage. And low resilience to climate damage not only results in increased capital costs from direct physical damage but also added costs that come in the form of high insurance premium rates, environmental damage, low retention and high turnover of residents, and reduced rental rates. Investing in sustainability can lower these capital costs and increase revenue.

Furthermore, state and federal regulations drive real estate investment trust (REIT) investors to favor companies that prioritize ESG improvements. REIT investment portfolios are considered high quality when they consist of properties with high resilience and low investment risks. These properties are high value due to their safe location, energy efficiency, and compliance with local environmental regulations.

Improved Transparency

Transparency has never been more critical in business. Investors and consumers value companies focused on more accurate information, higher ethical standards, and stricter compliance with regulations. By committing to sustainable ESG frameworks, real estate companies and property owners promote transparency and increase profitability.

Transparency through sustainable practices builds trust with investors, residents, and service providers. And this increased trust separates a brand from its competitors, boosts organic marketing, and drives up sales and revenue.

Increased Market Demand

The increasing number of sustainable real estate market choices is causing a rise in market demand, which in turn increases the property value of sustainable properties. Provided with more sustainable choices, investors and consumers are willing to pay a higher premium to avail of these choices. More and more residents are favoring green-certified and sustainably retrofitted properties that are managed responsibly by socially conscious companies.

With the high market demand, sustainability-focused properties can increase profitability through higher purchase or rental rates, improved return on investment (ROI), and buyer or resident attraction and retention. And the forecast is that this increasing trend will continue in the foreseeable future. Recent market surveys show that among millennials and Gen-Z demographics, sustainability is a main criterion for their real estate decisions.

Sustainable Real Estate Through Solar Power

Investing in solar power takes your property closer to achieving its sustainability and profitability goals. Switching to solar power provides significant and long-term sustainability results. A property can be made sustainable through the use of ‘green’ building materials, effective maintenance methods, or upgrading to energy-efficient lighting and appliances. But unlike these ways, investing in renewable energy results in more valuable and long-term benefits such as:

• Cheap and efficient energy. Sunlight is free and converting it to solar power is more efficient and more environmentally friendly than burning fossil fuel.    
• Decreased reliance on the power grid. Relying on the power grid means paying high utility costs, inefficient energy, reduced weather resilience, and being susceptible to blackouts or outages.
• Positive market effects. With the increasing demand for sustainable real estate, solar-powered properties attract and retain more residents.
• Solar power promotes transparency. Unlike power from the grid, solar power management is more transparent. With Ivy Energy’s proprietary algorithm and utility-grade monitoring, property owners, managers, and residents can access clear and accurate solar power information to make critical investment and energy usage decisions.

Sustainability and Profitability: Essential for the Future of Real Estate

Achieving a balance between sustainability and profitability is not only possible but also essential in the real estate sector. With the recognition of the significant impact of climate change on property prices and profitability, sustainable practices have emerged as a vital aspect of successful business management and investment strategies. By complying with ESG standards and embracing sustainable initiatives, real estate companies can enhance their financial performance in various ways.

Investing in solar power provides a path toward long-term sustainability by offering cheap and efficient energy, reducing reliance on the power grid, and attracting more residents due to the increasing market demand for sustainable properties. At Ivy Energy, we understand the importance of sustainability and profitability in real estate. Our multifamily solar solutions provide hassle-free implementation, helping you strike the perfect balance between environmental responsibility and financial success. By harnessing the power of solar energy, you can not only reduce your carbon footprint but also generate a new NOI for your property, all while sharing the benefits of sustainable energy with your residents.

Want to make your real estate portfolio more sustainable and profitable? Contact Virtual Grid for a free demo now!

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